Friday,21 September, 2018
Current issue | Issue 1181, (23 - 29 January 2014)
Friday,21 September, 2018
Issue 1181, (23 - 29 January 2014)

Ahram Weekly

The steel rush

Egypt’s steel industry has been suffering from harsh competition from cheaper Turkish imports, writes
Noha Moustafa

Al-Ahram Weekly

Egypt’s Chamber of Metallurgical Industries has repeatedly called upon the country’s Ministry of Trade and Industry to take measures to cap imports of Turkish steel, which is felt to represent harsh competition for Egyptian production, even as importers claim that the Turkish steel is helping to lower the price of the domestic steel.
Khaled Al-Bourini, the chairman of National Port Said Steel and a member of the chamber, told Al-Ahram Weekly after a meeting this week that decisions had been reached that could curb the rush of steel imports from Turkey. “They will not stop the imports altogether, but they will slow down the rate to protect the local steel industry,” he said.
One of the decisions is to demand that the Central Bank of Egypt (CBE) limit steel imports by insisting on letters of credit that are fully cash-covered and not allowing imports on cash on delivery, which also aligns with the Central Bank’s policy on letters of credit in US dollars or pounds sterling.
Members of the chamber confirmed the need to re-impose customs duties on steel that had previously been canceled, within the limits of WTO regulations, suggesting duties of between five and 10 per cent on imported steel.
Al-Bourini said that the chamber would not be filing a complaint to the Trade and Industry Ministry about possible dumping because this was a complex procedure and would require a great deal of time.  
In a statement released last week, head of the construction materials division of the Cairo Chamber of Commerce Ahmed Al-Zeini said that five companies had recently signed contracts to import 30,000 tonnes of Turkish steel. The imported steel would be delivered in the second half of January, he said.
The division estimated the cost of the imports at $18 million, saying that they were expected to stabilise local steel prices which have exceeded LE5,000 per ton.
However, the Chamber of Metallurgical Industries has repeatedly urged the ministry to take measures to restrict imports of Turkish steel, arguing that this negatively affects the national industry, although importers argue that the imports do not exceed five per cent of total consumption.
The ministry pledged to look into the alleged harm accruing to the Egyptian steel industry as a result of the Turkish steel imports.
Earlier this month, the chamber filed a complaint with the ministry about what it said had been an excessive increase in imports over the past two months. The total amount of imported Turkish steel between January and October 2013 reached 60,000 tonnes, it said, putting pressure on the dollar exchange rate and increasing dollar prices on the Egyptian market.
Turkish steel imports jumped to 120,000 tonnes from November to December 2013, with producers claiming that more than 120,000 tonnes of steel from Turkey entered Egyptian ports early this month at prices that were LE500 cheaper than domestic products.
They accused Mounir Fakhri Abdel-Nour, the minister of trade and industry, of inadvertently contributing to Turkish plans to weaken the Egyptian industry by dumping cheap steel on the Egyptian market as he had ended the 6.8 per cent duty on all imports of steel imposed in November 2012 for a period of 200 days and expiring last June.
Monthly imports of Turkish steel are close to 150,000 tonnes, representing about 25 per cent of domestic consumption. “The total volume of imports may not be great, but this amount in one month leads to a decline in the sales of national companies, with the cheap prices of the imported products causing the accumulation of stock at the companies,” Al-Bourini said, adding that the main problem for the local steel industry was pricing.
“If we managed to solve the problem of pricing, we wouldn’t need to import steel,” he said. “Before we think about imposing restrictions on imports, we should find a suitable pricing mechanism without forcing certain prices on the market as prices should be left to the laws of supply and demand.”
“The current situation will persist unless all the parties concerned find a good pricing mechanism that will protect both the manufacturer and the consumer,” Al-Bourini added. “Manufacturers should be able to achieve a proper and not exaggerated profit margin that allows them to pay their taxes and protects them against losses.”
The Chamber of Metallurgical Industries held a conference last month to clarify its stance on imports of Turkish steel, revealing that the Egyptian steel industry had lost some LE3 billion after the ministerial decision to end safeguard duties on steel imports.
In 2013, Turkey’s main steel export destination was the Middle East, which received 7.4 million metric tonnes, followed by Africa with 3.3 million. Countries recording increases in steel imports from Turkey included Iraq, Portugal, Italy, Yemen and Thailand, while Saudi Arabia, Egypt, Lebanon, Canada and Singapore recorded decreases, all compared to a year earlier.
According to the Turkish Steel Exporters Association, 2013 was a tough year for the Turkish steel sector due to turbulence in the global financial markets, the long-standing economic crisis in EU countries, and the Arab Spring in importing countries.
Turkey’s targeted steel export volume for 2014 is 18.5 million metric tonnes. “Regardless of the deteriorating political relations and the conspiracy theories that some believe Turkey is intentionally manipulating, Turkey will not leave the Egyptian market. It is a big market in close proximity to the country, and it will remain focussed on it,” Al-Bourini said.
Turkish companies manufacture steel according to European quality standards and use modern technologies that limit the consumption of energy. The manufacture of one ton of steel in Egypt requires 680 kilowatts of energy, compared to 320 kilowatts in Turkey.
Another advantage of Turkish steel, according to al-Bourini, is that Turkey is the closest exporting country to Egypt, making freight and shipment costs less than other exporting countries such as Russia or Ukraine.
“The import costs are reasonable, and Turkey pays subsidies to support its exporters, helping it to export cheaper steel,” he added.
However, Samir Nomani, member of the Export Council for Building Materials, disagreed. “There isn’t any real advantage in prices. Importers assume that there is a chance of achieving higher profits, but this is a wrong assumption as importing more steel leads to stagnation in the steel market,” he said, adding that local steel prices were not higher than international prices.
Importing steel did not favour the consumer or manufacturer, he said, but did benefit five or six importers who made an extra LE200 in profits. “We are being swamped by huge quantities of imported steel rather than dumped with steel at lower prices,” he said.
Al-Bourini said that local manufacturers faced many challenges as investment costs were very high, as were charges, fees and other expenses. “These difficulties weigh against Egypt’s opening new export markets, and the competition is not in our favour,” he said.
Nomani agreed that there were increasing challenges facing the industry. As factories had had to decrease production due to weak demand, this had led to increases in fixed costs.
“If factories ran at full capacity, this would decrease fixed costs and improve competition conditions,” he said.
Local production capacity is not wholly used either, since local production reaches 8.5 million tonnes of steel, while consumption remains as low as six million tonnes annually. This means that there are 2.5 million tonnes of unused steel on the market. “Even at its highest point before January 2011, local consumption didn’t exceed 7.5 million tonnes,” Nomani said.
Protecting the industry was not an option, he said, “but you surely don’t need to burden the industry with any more difficulties.”
Construction and real estate in Egypt have not seen much activity since 2011. But with the possibility of greater political stability pending, construction activity could increase and with it steel consumption. However, until this happened, Nomani said, there was no need to increase steel imports.
The construction and real estate markets were wavering as the prices of construction materials varied from day to day, he added.
“The construction market is not stable. We need to fix the prices of construction materials for at least two or three months in order to achieve stability. Contractors have had cold feet as prices have changed unpredictably, and many of them have factored in high profit margins in case the prices of materials went up unexpectedly,” Al-Bourini added.

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